RENT FROM NATURAL RESOURCES

RENT FROM NATURAL RESOURCES IN SUB-SAHARAN AFRICA 1
RENT FROM NATURAL RESOURCES IN SUB-SAHARAN AFRICA
By Name
Course code
Instructor’s name
University name
City, State
Date of submission

RENT FROM NATURAL RESOURCES IN SUB-SAHARAN AFRICA 2
Rent from Natural Resources in Sub-Saharan Africa
Sub-Saharan Africa is known for its rich natural resources. The rent obtained from these
sizable natural resources has a significant contribution to the overall GDP. The positive impact
of rent received from resource rent is affected by the prevalence of the Dutch disease in sub-
Saharan countries. Poor management of the exchange rate received from the resource rents also
contributes to the negative correlation between the resource rent and the GDP per capita (Pérez
and Claveria, 2020, p.101535). Besides, the positive correlation between resource rent and GDP
per capita significantly depends on the effective management of these natural resources. This is,
however, a challenge to most of the sub-Saharan-African countries. Most lack effective policies
to ensure effective management of this abundant resource which hence does not make a big
difference between them and resource-scarce countries. The rent obtained from natural resources
in sub-Saharan Africa according to Asamoah, Mensah, and Bondzie (2019, p.66) does not
translate into stronger economic performance and a higher standard of living. To improve the
impacts of the rent from the natural resources, the sub-Saharan African countries need to make
the right policy decisions in managing these natural resources. According to recent studies, most
of the sub-Saharan countries have lost opportunities for strong growth and economic
development. This is attributed to the volatility in resource prices. National politics have
significantly contributed to the poor performance of the macroeconomic (Oyinlola, Adedeji, and
Bolarinwa, 2020, p.88). This is due to the uneven distribution of the rent obtained from natural
resources. The rent obtained ends up being in the hands of a few hence low GDP growth rate
than expected. The study determines the impacts of rents from natural resources on real
exchange rates in sub-Saharan Africa.
Literature Review

RENT FROM NATURAL RESOURCES IN SUB-SAHARAN AFRICA 3
Sub-Saharan Africa has a higher rate of economic growth rate as compared to those of
the developing world. (Gylfason and Zoega, 2018, p.14) conducted a qualitative study based on a
case study to compare the rate of the economic growth rate of the sub-Saharan Africa countries
and those of the developing world. Their findings indicate that sub-Saharan Africa has had its
economic growth rate growing at a faster rate of approximately 4.6% since 1999-2010 as
compared to the economy of the rest of the developing countries. The sustained economic
growth rate and development of these countries have been on rising since 1999 due to the
availabilities of natural resources that provide opportunities for economic growth and
development. It is worth noting that the impact of the natural resources revenue in this region
remains mixed, despite this growth. (Ebeke and Etoundi, 2017, p.408) notes that Sub-Saharan
Africa continues to be the poorest part of the earth with its rich natural resources. Despite the
dismal benefit most of these resource reach countries obtain from natural resources, other
countries such as Australian and Canada benefit more from the rent they obtain from their rich
natural resources.
research has been developed to give the results and identify the mechanisms that
contribute to low economic growth rates in response to the poor development in these countries.
A qualitative study conducted by (Auty and Furlonge, 2019, p.23) to analyze the factors that
contribute to the low economic growth rates in Sub-Saharan Africa indicates sectors have an
imperative role in the overall economies of these countries. A sector can weaken economies'
development prospects if a sector exerts-economies of scale by learning or by activities.
(Barbier, 2018) notes that natural resources can be crowded out due to the investment in human
capital. He further argues that the rate of school enrollment becomes lower if such countries
engage more in the primary sector.

RENT FROM NATURAL RESOURCES IN SUB-SAHARAN AFRICA 4
The investment of the rent received from the natural resources on public education and
the health sector varies in Sub-Saharan Africa. (Badeeb, Lean, and Clark, 2017, p.5) conducted
an investigative study based on a case study to analyze the impacts of the rents from the natural
resources on social amenities such as public education and the health sector. Their findings
indicate that the share of GDP on public education and health varies in a different country within
the sub-Saharan region. Public education and health have the lowest share of GDP for the oil
exporters in SSA. Further findings show that the oil exporters had the lowest expenditure of DGP
on public education and health of about 3% followed by the non-resource rich low-income
countries spending about 6% of their natural resources on the two-sector from 2006-2009
(Elbadawi and Kaltani, 2016, p.44). However, according to their findings, the middle-income
countries had the highest expenditure of 8% on education and health.
Studies have been carried out to investigate the extent of resource exploitation that is
affected by the prevalence of the Dutch disease in these countries. (Ben-Salha, Dachraoui, and
Sebri, 2018, p.125) conducted a qualitative study to investigate the prevalence of Dutch disease
and its influence on the development of the economies in sub-Saharan Africa. Their findings
indicate that the presence of the Dutch disease in these regions has resulted in economic
imbalances. Their further findings indicate that the imbalances caused by the disease have been
detrimental to the economies of the individual countries evaluated. This is consistent with the
findings of (Calderón and Castillo Castro, 2019). (Canuto and Daoulas, 2019) found out that the
Dutch disease-free countries had double the per capita income than those with the disease.
The oil rents for the oil-dependent economies vary based on their exchange rate
management. Studies show that the low exchange rate received on oil rents in these countries has
been contributed by the weakness in natural resources and macroeconomic management and

RENT FROM NATURAL RESOURCES IN SUB-SAHARAN AFRICA 5
poor governance. The broader loss of international competitiveness and reduction manufacturing
output and employment is due to the weak primary exports to the rest of the economy. Their
further analysis shows that the resource curse is due to the uneven distribution of the income
obtained from the exploitation of the natural resource. National politics has also been identified
as the chief contributor to the low economic growth the natural resource-rich countries as the
rent accrued from the exchange rates are captured for political reasons (Dwumfour and Ntow-
Gyamfi, 2018, p. 411). A large mass is, therefore, left out from the benefits obtained from these
exchange rates.
Industry Background
The study was conducted among 6 countries within the sub-Saharan African Countries. Zambia,
Guinea, Gabon, South Africa, Tanzania, and DRC Congo were selected to provide data for the
study. These 5 countries, therefore, form the population of the study.
Research Aim, Questions/Hypothesis, and Objectives
Research Aim
The main aim of the study is to determine the impact of rents from natural resources on real
exchange rates in Sub-Saharan Africa. The conclusion obtained from this objective will be
incidental in making assertions on the impact of rents from natural resources on the exchange
rate.
Research Question
What is the impact of rents from natural resources on real exchange rates in Sub-Saharan Africa?
Sub Questions
Types of exchange rate regimes
The real exchange rate regimes

RENT FROM NATURAL RESOURCES IN SUB-SAHARAN AFRICA 6
Dutch disease
Natural resource rents
Exchange rate management in natural resources
Hypothesis
The rent from the natural resource on real exchange rates has negative impacts on the residents
of the 6 Sub-Saharan Africa countries selected for the study.
There are low exchange rates on the natural resource rent due to poor management of resources.
Research objectives
The research study aims to determine the impacts of the rent obtained from these natural
resources on the overall exchange rate. The research evaluates the impacts on the rents on
improving the natural resources. The research also establishes the reasons behind the poor
management of natural resources in Sub-Saharan Africa. The research also aims to analyze the
consequence of no improvement in natural resource management and ways in which such
countries can achieve sustainable natural resources. The research seeks to determine how the
SSA contraries can increase their annual export rate of the mineral resources. Finally, the
research analyzes how volatility in the resource price can contribute to instability in
macroeconomic aggregates.
Assumptions of the Study
That the survey questions shall be faithfully answered by the respondents regarding the impacts
of rent from real exchange rates. The study also assumes that the respondents are cable of
answering the survey questions.
Methodology and Research Methods

RENT FROM NATURAL RESOURCES IN SUB-SAHARAN AFRICA 7
The research employed the use of primary research to investigate the impacts of the rent from the
real exchange on a natural resource on the sub-Saharan African Countries. Quantitative data
obtained from the World Bank was used to analyze the topic of the study. Countries with at least
8% of their GDP is made up of the rent received from the real exchange of the natural resource
were randomly selected for analysis. 2005 was the baseline year used by the study for
comparison.
Population and Sampling Design
Population
6 countries within the sub-Saharan African Countries. Zambia, Guinea, Gabon, South Africa,
Tanzania, and DRC Congo were selected to provide data for the study form the respondents of
the study to provide the data on the impacts of rents received from the real exchange.
Sampling Design
Sampling frame
The 6 countries will form the sample frame in providing data on the impacts of rent received
from the real exchange on economic growth.
Sampling Techniques
Simple random sampling techniques were adopted by the study to select the group that represents
the entire population of the study. Simple random sampling techniques were applied due to its
cost-effectiveness in terms of the resources required.
Data
The data used in the analysis of the sample population was obtained from the World Bank.
Trends in Natural Resource Rents and Prices in SSA since
1960
Average Resources Rents
per Capita ($)
Average Value of the
Commodity Price Index

RENT FROM NATURAL RESOURCES IN SUB-SAHARAN AFRICA 8
50 50000
100 100000
150 150000
200 200,000
250 250,000
300 300,000
Infant Mortality and Natural Resource Rents in SSA
Infant Death per 1000 Births 20 50 70 150 170 200
Natural Resource Rents per capita 1500 1600 2700 3000 5000 6000
Data Analysis
Data on World Development Indicators (WDI) for the 6 sub-Saharan African Countries obtained
from the World Bank Database was employed to discuss the topic of the study. A statistical
summary of the data was then tabulated for comparison. The research employed the use of
correlation analysis techniques to analyze the pre-existing data obtained from the World Bank
for the 6 countries forming the sample population of the study. The research also employed the
use of cross-sectional analysis, panel analysis techniques to analyze the data obtained from the
World Bank data Infant mortality rate was used as a variable to help in analyzing the impacts of
natural resource rent on the infant mortality rate. Natural resource rent, government revenue, and
spending were reported as a percentage of GPD. The WDI data was then used to convert the
three variables into US dollars per capita. Commodity Price Index was employed by the research
study to measure and correlate the natural resource rent for the 6 sub-Saharan Countries. The
present value of rents from the extraction of oil, natural gas, coal, and mineral was estimated by
multiplying the log of the country's average sub-soil assets by the log of the index.
Findings and Analysis

RENT FROM NATURAL RESOURCES IN SUB-SAHARAN AFRICA 9
Findings show that among the selected countries for the sample, Guinea and Gabon have the
highest natural resource rents per capita. Further findings indicate that the average resource rents
are not significantly correlated with average annual GDP growth despite the higher natural
resource rent per capita than other countries within the sample population. The relationship
between infant mortality reduction and natural resource rents per capita income. Guinea and
Gabon earn close to $6000 and $3000 per capita in resources respectively hence are outliers
according to the earning rate for the sample countries.
Discussion
Based on the data obtained from the WDI, the GDP of half of the sample population are made up
of 10% of the rent received from the real exchange of the natural resource. The Democratic
Republic of Congo has its overall GDP made of up to 73% of the resource rent (Raheem and
Asongu, 2018, p.106). There is therefore as a positive correlation between resource rent and
GDP per capita for Sub-Saharan African as illustrated in figure 1 below.
GDP and Natural resource rents in SSA
Corr=0.57
Based on the scatter plot above resource rent directly correlated with the overall GDP per capita
of sub-Saharan African. A different pattern is, however, observed in a scatter plot of resource

RENT FROM NATURAL RESOURCES IN SUB-SAHARAN AFRICA 10
rents against infant mortality rates. Findings indicate that resource rent and the infant mortality
rate are weakly positively correlated. The resource-rich countries despite being richer on average
have slightly higher infant mortality rates (Mawejje, 2019, p.176). Higher-income is always
associated with a lower infant mortality rate at the household level and in cross-country
comparison hence higher infant rate observed against the high resource rent received from the
real exchange is therefore counter-intuitive (Yang et al., p.121). The infants at high risk of dying
may not be in access to the rent received from the real exchange on the natural resource thereby
leading to such pattern (Mamo, Bhattacharyya, and Moradi, 2019, p.29). The correction between
resource rent and infant mortality rate of the sample countries can be illustrated by the scatter
plot below.
Infant Mortality and Natural Resource Rents in SSA
Corr = 0.078
Figure 2: Infant Mortality and Natural Resource Rents in SSA
The research exploited the variation in the resource rents overtime for the sample countries to
determine the relationship between natural resources and infant mortality rate through the
application of the panel analysis technique. Findings from the analysis of the data obtained from

RENT FROM NATURAL RESOURCES IN SUB-SAHARAN AFRICA 11
the World Bank indicate that there has been a fluctuation in the rent received from the real
exchange of natural resources for these countries since 2010 (Henri, 2019, p.101406). The
international commodity prices captured in the average of the commodity price index can be
used to explain the fluctuation in the overall price of the resource rent received from the real
exchange rates. The international price movements are the determinant factor of the overall profit
received from the natural resources since the resource exporters are largely price takers. Based
on my observations, the infant mortality rate should not be affected by the international prices of
natural resources. A plot of average resource rents per capita against rents per capita for the
sample population illustrates the fluctuation observed on the prices of the rent received from the
real exchange on the natural resources.
Figure 3: Trends in Natural resource Rents and Prices in SSA.
Critique

RENT FROM NATURAL RESOURCES IN SUB-SAHARAN AFRICA 12
The collection, dissemination, and analysis of the data for the 6 countries selected for the study
were affected by the inadequate measures of variables. The sample size was also inadequate
hence the information provided may not representative of the 46 countries in the sub-Saharan
region. The collection of the data for use in the study was also affected by limited financial
resources. Future researchers wishing to conduct a similar study may find the above limitations
useful.
Conclusion
The rent from natural resources on real exchange rates has both positive and negative effects on
the GDP and the infant mortality rate in Sub-Saharan Africa. There has been a fluctuation in the
rent received from the real exchange of natural resources for these countries since due to the
fluctuation of the international commodity prices. The resource-rich countries despite being
richer on average have slightly higher infant mortality rates. The resource rent and infant
mortality rate are, therefore, weakly positively correlated. The average resource rents are not
significantly correlated with average annual GDP growth despite the higher natural resource rent
per capita than other countries within the sample population. This is due to poor exchange rate
management in natural resource-dependent economies. The low exchange rate received on oil
rents in these countries has been contributed by the weakness in natural resources and
macroeconomic management and poor governance. The presence of Dutch disease in these
regions has resulted in economic imbalances. Finally, the share of GDP on public education and
health varies in a different country within the sub-Saharan region.

RENT FROM NATURAL RESOURCES IN SUB-SAHARAN AFRICA 13
References
Asamoah, L.A., Mensah, E.K. and Bondzie, E.A., 2019. Trade openness, FDI and economic
growth in sub-Saharan Africa: do institutions matter?. Transnational Corporations
Review, 11(1), pp.65-79.
Auty, R.M. and Furlonge, H.I., 2019. The Rent Curse: Natural Resources, Policy Choice, and
Economic Development. Oxford University Press, USA.
Barbier, E.B., 2018. Natural capital depreciation in Sub-Saharan Africa: the role of sovereign
wealth funds. Ghanaian Journal of Economics, 6(1), pp.5-20.
Badeeb, R.A., Lean, H.H. and Clark, J., 2017. The evolution of the natural resource curse thesis:
A critical literature survey. Resources Policy, 51, pp.123-134.
Ben-Salha, O., Dachraoui, H. and Sebri, M., 2018. Natural resource rents and economic growth
in the top resource-abundant countries: a PMG estimation. Resources Policy.
Calderón, C. and Castillo Castro, C., 2019. Trade Integration and Growth: Evidence from Sub-
Saharan Africa. The World Bank.
Canuto, O. and Daoulas, C., 2019. Natural Wealth and Economic Growth: The Case of Sub-
Saharan Africa.
Dwumfour, R.A. and Ntow-Gyamfi, M., 2018. Natural resources, financial development and
institutional quality in Africa: Is there a resource curse?. Resources Policy, 59, pp.411-426.
Elbadawi, I. and Kaltani, L., 2016. Real exchange rates and export performance in oil-dependent
Arab economies. Understanding and Avoiding the Oil Curse in Resource-rich Arab Economies,
p.44.
Ebeke, C.H. and Etoundi, S.M.N., 2017. The effects of natural resources on urbanization,
concentration, and living standards in Africa. World Development, 96, pp.408-417.
Gylfason, T. and Zoega, G., 2018. The Dutch Disease in reverse: Iceland’s natural experiment.
In Getting Globalization Right (pp. 13-36). Springer, Cham.
Henry, A., 2019. Transmission channels of the resource curse in Africa: A time
perspective. Economic Modelling, 82, pp.13-20.
Oyinlola, M.A., Adedeji, A.A. and Bolarinwa, M.O., 2020. Exploring the nexus among natural
resource rents, human capital and industrial development in the SSA region. Economic Change
and Restructuring, 53(1), pp.87-111.
Pérez, C. and Claveria, O., 2020. Natural resources and human development: Evidence from
mineral-dependent African countries using exploratory graphical analysis. Resources Policy, 65,
p.101535.
Raheem, I.D. and Asongu, S.A., 2018. Extending the determinants of dollarization in sub-
Saharan Africa: The role of easy access to foreign exchange earnings. Research in International
Business and Finance, 45, pp.106-120.

RENT FROM NATURAL RESOURCES IN SUB-SAHARAN AFRICA 14
Mawejje, J., 2019. Natural resources governance and tax revenue mobilization in sub saharan
Africa: The role of EITI. Resources Policy, 62, pp.176-183.
Mamo, N., Bhattacharyya, S. and Moradi, A., 2019. Intensive and extensive margins of mining
and development: Evidence from Sub-Saharan Africa. Journal of Development Economics, 139,
pp.28-49.
Henri, P.A.O., 2019. Natural resources curse: A reality in Africa. Resources Policy, 63,
p.101406.
Yang, S., Abdulahi, E., Haider, M.A. and Khan, M.A., 2019. Revisiting the Curse: Resource
Rent and Economic Growth of Sub-Sahara African Countries. International Journal of
Economics and Financial Issues, 9(1), p.121.

RENT FROM NATURAL RESOURCES IN SUB-SAHARAN AFRICA 15

RENT FROM NATURAL RESOURCES IN SUB-SAHARAN AFRICA 16

RENT FROM NATURAL RESOURCES IN SUB-SAHARAN AFRICA 17

RENT FROM NATURAL RESOURCES IN SUB-SAHARAN AFRICA 18